Wall Street and Canadian stocks point to a muted opening Thursday as investors spliced and diced the minutes from the latest U.S. Federal Reserve meeting that showed the central bank was definitely heading toward more rates hikes in the future.
That boosted the U.S. dollar overnight and dragged down Asian stocks and kept European shares mixed.
Investors are also looking ahead Thursday to more earnings reports from big companies including American Express, CP Rail, PayPal, and Philip Morris, which reported stronger than expected results.
There could be some reaction in the oilpatch Thursday as MEG Energy Corp. has rejected Husky Energy Inc.’s $3.3-billion unsolicited bid, urging its investors to hang on for a richer offer for the oil sands producer.
Facebook could continue to see reaction after four major U.S. public funds that hold shares in Facebook Inc. on Wednesday proposed removing chief executive officer Mark Zuckerberg as chairman following several high-profile scandals and said they hoped to gain backing from larger asset managers. Facebook shares were down 0.5 per cent in premarket trading.
On Wednesday, stocks closed lower with the TSX held back by weak marijuana stocks on the first day of legalization across Canada, and Wall Street fell as investors pondered the potential of another interest rate hike in December.
Cannabis stocks in Toronto slid as investors looked at high demand and short supply at marijuana retailers as the first day of legal selling got under way.
The minutes from the Fed’s Sept. 25-26 meeting showed every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further, despite U.S. President Donald Trump’s view that the Fed was tightening too much.
U.S. President Donald Trump faced criticism over his ongoing trade disputes as Senate Republican Leader Mitch McConnell said the U.S. needs to resolve these issues, particularly with China because tariffs imposed by these countries are pinching the “red hot” U.S. economy.
With very little enthusiasm coming from Asia, London’s FTSE was down 0.16 per cent, Frankfurt’s DAX was up 0.11 per cent and Paris’s CAC was up 0.31 per cent.
Overseas, China’s benchmark stock index skidded to four-year lows on Thursday, dragging Asian equities lower, MSCI broadest index of Asia-Pacific shares outside Japan fell 0.7 per cent.
China’s stock markets were hit hard, with the nation’s premier warning that the economy faces increasing downward pressure, amid worries over the impact of an escalating tariff war with the United States.
China’s benchmark Shanghai Composite Index shed as much as 2.6 percent to hit its lowest level in four years, while the blue-chip CSI 300 index dropped as much as 2.1 percent, not far from its more than two-year low marked previous day.
China’s lending data released on Wednesday gave little reassurance for investors ahead of third quarter gross domestic product data set for release on Friday, that is expected to show the slowest growth since the global financial crisis.
“The overall falling trend of total social financing growth remains unchanged, and the loosening of the credit situation that the market has been waiting for has not yet emerged,” analysts at Ping An Securities in Hong Kong said in a note.
The rest of Asia also struggled, with Hong Kong’s Hang Seng index easing 0.7 per cent and Japan’s Nikkei average closing down 0.8 per cent.
Data out earlier in the day showed Japan’s exports dropped for the first time since late 2016, hit by declines in shipments to the United States and China.
Commodities
Oil slipped below US$80 a barrel on Thursday as the fourth weekly increase in U.S. crude inventories suggested ample supply, while Saudi-U.S. tension and falling Iranian exports lent support.
U.S. crude inventories rose 6.5 million barrels last week, the Energy Information Administration said on Wednesday, the fourth straight weekly increase and almost three times what analysts had forecast.
Brent crude, the global benchmark, was down 70 cents at US$79.35 a barrel. It has dropped over US$7 from a 2014 high of US$86.74 reached on Oct. 3. U.S. crude was down 61 cents at US$69.14.
“Stocks are building,” said Olivier Jakob, oil analyst at Petromatrix. “It’s a continuous trend. Week after week, it does start to add up.”
Oil had been rising this week on concern about a decline in Iranian exports due to U.S. sanctions and tension between the United States and Saudi Arabia after the death of Saudi journalist Jamal Khashoggi.
U.S. lawmakers pointed the finger at the Saudi leadership over the disappearance of the Saudi critic, suggesting sanctions could be possible. Saudi Arabia denies that it had any role in Khashoggi’s disappearance.
Gold rose on Thursday, supported by an improved technical outlook after scaling key milestones as the market continued to hold out against a stronger dollar.
Spot gold edged 0.1 per cent higher to US$1,223.02 an ounce. U.S. gold futures eased by 0.1 per cent to US$1,226.10.
“Overall, we have been technically breaking above the previous highs, so it will be difficult for gold prices to move below that,” said ABN AMRO analyst Georgette Boele. “I think the overall picture has improved.”
A global stock market sell-off on Monday added some appeal to gold, helping prices to a two-and-a-half-month peak of US$1,233.26.
Gold has also been testing resistance near the 100-day moving average, around US$1,226, with some analysts saying a break above that level could trigger further gains.
“The ones getting squeezed now are the shorts,” Beole said.
Currencies and bonds
The Canadian dollar was trading lower, falling below 77 cents US as oil prices wavered.
The loonie “failed to recover [in trading overnight] as other [currencies] bounced in Asia. It is now testing resistance at US$1.3041, a break through there would target US$1.3082 and then US$1.3132. While relatively light positioning saved the Canadian dollar last week when others were selling off, there was good interest to buy the Canadian dollar on Monday/Tuesday, which is hurting the Canadian dollar a bit now,” said RBC in a note.
The U.S. dollar stepped back from a one-week high on Thursday as investors took profits after a rally this week encouraged by upbeat Fed minutes signalling more rate hikes in store.
The dollar index, which measures its value against six major peers, rose as high as 95.765, its fresh one week-high.
A pause in the greenback’s rally boosted emerging market currencies led by the Turkish Lira and pushed higher-yielding currencies such as the Australian dollar and the New Zealand dollar higher.
The minutes from the Fed’s Sept. 25-26 meeting showed every Fed policymaker backed raising interest rates and also generally agreed borrowing costs were set to rise further, despite U.S. President Donald Trump’s view that tightening has already gone too far.
Goldman Sachs strategists said the minutes confirmed market expectations of a rate increase in December. Two more are expected next year, according to swap markets.
“The minutes underscore the fact that the markets are vastly underestimating the Fed’s capacity to tighten,” said Win Thin, global head of FX strategy at Brown Brothers Harriman in a note.
“At some point, we think markets will start thinking about a fourth hike next year.”
The U.S. 10-year Treasury yield was at 3.203 per cent, up slightly. The Canadian 10-year bond yield was at 2.519 per cent, down slightly.
Stocks to watch
Shares in Aurora Cannabis Inc. will begin trading on the New York Stock Exchange next week. The marijuana company says it has been approved for listing on the U.S. market and will start trading on Oct. 23. Aurora’s shares will trade under ticker symbol ACB, the same one it trades under on the Toronto Stock Exchange.
Property and casualty insurer Travelers Corp. on Thursday reported a third-quarter profit that more than doubled, driven by lower catastrophe losses and an increase in premiums and investment income. Net income rose to US$709-million, or US$2.62 per share, in the third quarter ended Sept. 30, from US$293-million, or US$1.05 per share, a year earlier. Its shares rose 1.2 per cent in premarket trading.
AltaGas Ltd.'s attempt to spin out its Canadian utility business has drummed up enough investor demand to move forward, but the initial public offering has been priced below its marketing range and the deal size will shrink. Under the terms set on Wednesday, AltaGas will raise $239-million from the IPO, pricing the 16.5 million shares at $14.50 each, according to people familiar with the sale.
Philip Morris International, maker of Marlboro cigarettes among others, reported higher than expected quarterly sales and profit on Thursday, helped by its IQOS tobacco-heating device. The company reported third-quarter earnings per share of US$1.44, ahead of US$1.27 in the same period last year and analysts’ average estimate of US$1.28, according to I/B/E/S data from Refinitiv. Philip Morris stood by its 2018 forecast for diluted earnings per share of between US$4.97 and US$5.02 at prevailing exchange rates. Excluding currency fluctuations, it said its forecast represented growth in adjusted earnings of 8-9 per cent. Its shares rose 2.2 per cent in premarket trading.
Top U.S. aluminum producer Alcoa Corp. reported a better-than-expected quarterly profit late Wednesday, as a series of supply hits boosted alumina prices. It also announced of a US$200-million share repurchase program. Excluding certain items, Alcoa earned 63 cents per share, easily topping expectation of 36 cents, according to I/B/E/S data from Refinitiv. Its shares rose 4.6 per cent in premarket trading.
Earnings include: American Express Co.; BB&T Corp.; Canadian Pacific Railway Ltd.; Danaher Corp.; Intuitive Surgical Inc.; Las Vegas Sands Corp.; PayPal Holdings Inc.; Philip Morris International Inc.; The Blackstone Group LP; The Travelers Companies
Other reading: Thursday’s small-cap stocks to watch
Economic news
(8:30 a.m. ET) Canada’s ADP Employment Report for September.
(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 13.
(8:30 a.m. ET) U.S. Philadelphia Fed index for October. Consensus is a reading of 21.0, down from 22.9 in September.
(8:30 a.m. ET) U.S. leading indicators for September. Consensus is an increase of 0.5 per cent from August.
with files from Reuters